David Williams is the Asia Pacific Partner of Draper Fisher Jurvetson perhaps the best-known Silicon Valley venture capital firm. The firm has just opened new offices in Hong Kong and Singapore and hired Williams away from the hallowed respectability of investment banking with Merrill Lynch. Here, he talks with Nick Lord about his new firms plans for the region and his views on where the internet is going.
Q: So why open offices in Asia now?
A: The venture capital market in Asia is still relatively under developed compared to the US and Europe. Silicon valley has, by many estimates, 500-750 venture capital firms alone. Here in Asia there are probably only 10-15 firms that are really active in VC investing. For a while however, there were a number of property companies, corporations and angel investors who had poured money into the market and it became crowded around the end of last year and the beginning of this. All that hot money has now disappeared and we are back to a situation where there are now still too few VCs. We are, to our knowledge, the only major Silicon Valley VC firm with a physical presence in Asia right now. And that is probably because convincing anyone to leave Silicon Valley is still pretty tough.
Q: What are you looking for in Asia?
A: Some of the plans we are receiving right now are worth considering but too many are just copycats of existing business models that is true around the world not just in Asia. We are looking for the pioneers that will generate excess returns. We are looking for entrepreneurs who have a brand new idea. We are not interested in the number two portal or the number three B2B exchange.
Q: What specific opportunities do you see in Asia?
A: We see two types of business in Asia that are interesting. The first is the mobile sector. Any time you have a platform shift you have an opportunity for start-ups. When you switch platforms there is a chance that the incumbents operating on the old platform might not make it in the new platform. For instance Yahoo! might not be the dominant mobile browser. We are seeing plenty of start-ups especially those coming out of China which are trying to do just that. And to the extent they get it right, these companies can beat companies like Yahoo!. Asia and Scandinavia are at the center of this global platform shift we are seeing right now.
We also like businesses that are focused on the global markets, rather than just the local markets. There are too many companies that have listed here in Hong Kong for instance that are just Hong Kong plays. Even if you can capture 100% market share, you will hit the ceiling and stop growing. You need scalability, not only throughout Asia but also throughout the world. These types of global plays are just now becoming more prevalent here in Asia versus years past.
Q: Do you have any examples of these global companies that are headquartered in Asia?
A: They are hard to find, but I would say Creative Technologies out of Singapore is a very good example. Others we are looking at are still very small. One example is a company called iTelco. Its a unified messaging company that we have invested in. They are primarily focused on greater China and Asia but they have the opportunity to take their product out of the region. We believe they have a better technology than the players in the US.
Q: What role does the VC community have in the predicted consolidation among Asian internet companies?
A: Larger firms such as Softbank or PCCW have so many investments that they generally take a portfolio approach and may not get as active in each company they invest in. We, however, do get very active. We have regular discussions with partners for some of our investments here in Asia. But it is still early.
We want to make sure each of our investments has the best chance to realise its value, either via IPO or through consolidation with another player at the right time and price. With some companies we have invested in, for instance iTelco, we brainstorm with them to try to work out where the market is going. Will unified messaging be a stand-alone product or more likely part of a suite of services offered by a telecom company? If it is the latter, then we should help them to team up with one of these guys. If it is the former, they should maintain their independence.
After IPO we do a number of things to assist our portfolio companies. One example is that we try to persuade the investment banks to provide equity research coverage. Without input from VCs, investment banks will generally only cover large capitalization companies. Typically, they will research small internet companies only if it is in their long term economic interest - so we try to convince them that it is, in fact, in their interest.
Q: Are efficient and effective exit strategies more difficult in Asia than in the US?
A: They are little more difficult here. Apart from all the normal reasons why mergers are hard to do, here you have families and individuals with large stakes of control; you also have issues of face. Elsewhere it is usually a simple economic decision this company is willing to pay X and our market value is Y it is easy to decide whether or not to accept the offer. So the M&A exit is a little slower here than it is in the US.
On the public market front, the markets had been fairly open. Right now they are closed to most new internet companies the IPO window is shut for a while. Given the shake out we have seen, the next time the window opens, it will just be for quality companies at least until the next stage of investment euphoria washes over.